Projected $300 Million Developments Will Capitalize On Improving Demand In Late 2025

Key Takeaways

• Strategic acquisitions in fast-growing submarkets and development projects are set to enhance future earnings and revenue growth.
  
• Financial flexibility from interest rate reductions and equity issuance will help lower borrowing costs and improve margins.
  
• Decreased occupancy and potential demand shortfalls, influenced by geopolitical uncertainties and regional market challenges, could undermine revenue growth and stability.

Catalysts

EastGroup Properties, Inc. (NYSE: EGP), a member of the S&P Mid-Cap 400 and Russell 2000 Indexes, is a self-administered equity real estate investment trust focused on the development, acquisition and operation of industrial properties in major Sunbelt markets throughout the United States with an emphasis in the states of Texas, Florida, California, Arizona and North Carolina.

• EastGroup Properties is seeing strong leasing spreads and increasing same-store NOI, suggesting potential for revenue growth despite recent occupancy declines, as demand improves in late 2025 and supply remains low.
  
• The company’s acquisition strategy is accretive and targeted at long-term growth by increasing NAV per share through strategic purchases in fast-growing, land-constrained submarkets, expected to boost future earnings.
  
• EastGroup is focused on development and acquisitions with a projected $300 million in development starts primarily in the second half of 2025, potentially driving future revenue and earnings growth.
  
• With interest rate reductions in refinancing and added financial flexibility from equity issuance, EastGroup is poised to reduce borrowing costs and enhance net margins.
  
• EastGroup’s diverse geographic and tenant base, combined with trends such as onshoring and evolving logistics, positions the company to stabilize and grow earnings over the long term regardless of economic conditions.

EastGroup Properties Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EastGroup Properties's revenue will grow by 11.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 35.7% today to 37.8% in 3 years time.
• Analysts expect earnings to reach $337.4 million (and earnings per share of $6.58) by about March 2028, up from $227.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 45.3x on those 2028 earnings, up from 41.0x today. This future PE is greater than the current PE for the US Industrial REITs industry at 31.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.01%, as per the Simply Wall St company report.

EastGroup Properties Future Earnings Per Share Growth

Risks

• The occupancy rate, while historically strong, has decreased by over 200 basis points from the fourth quarter of 2023, which might affect revenue growth.
  
• The anticipated increase in development activity later in the year is based on demand forecasts that may not materialize as expected. If demand falters, it could lead to underutilized assets and lower earnings.
  
• Tariffs and geopolitical uncertainties could impact the manufacturing costs and supply chain efficiencies for the tenants, potentially affecting rental income if tenants face financial hardships.
  
• Challenges in specific markets, particularly in California regions like Los Angeles, where there is still stabilization needed after periods of negative absorption, may hinder revenue growth.
  
• Despite strong leasing activity, there are concerns about the pace of converting tours and proposals into signed leases, which could impact future occupancy rates and revenue stability.

Valuation

• The analysts have a consensus price target of $197.895 for EastGroup Properties based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $218.0, and the most bearish reporting a price target of just $180.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $892.7 million, earnings will come to $337.4 million, and it would be trading on a PE ratio of 45.3x, assuming you use a discount rate of 7.0%.
• Given the current share price of $179.62, the analyst price target of $197.89 is 9.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.